Company BFM has several bond issues outstanding, each making semiannual interest payments. The bonds are listed below. If the corporate tax rate is 15%, what is the aftertax cost of debt? Bond Coupon Rate Price Quote Maturity Face Value
1 7.5% 105.0 5 years $20,000,000
2 5.8 95.4 8 years 40,000,000
3 7.7 103.8 15 1/2 years 45,000,000
4 8.1 105.7 25 years 60,000,000

bond 1:

YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

YTM = {750,000 + [(20,000,000 - 21,000,000) / 10]} / [(20,000,000 + 21,000,000) / 2]

YTM = 650,000 / 20,500,000 = 3.17 x 2 = 6.34%

after tax cost of debt = 6.34% x (1 - 15%) = 5.39%

bond 2:

YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

YTM = {1,160,000 + [(40,000,000 - 38,160,000) / 16]} / [(40,000,000 + 38,160,000) / 2]

YTM = 1,275,000 / 39,080,000 = 3.26 x 2 = 6.53%

after tax cost of debt = 6.53% x (1 - 15%) = 5.55%

bond 3:

YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

YTM = {1,732,500 + [(45,000,000 - 46,710,000) / 31]} / [(45,000,000 + 46,710,000) / 2]

YTM = 1,677,339 / 45,855,000 = 3.66 x 2 = 7.32%

after tax cost of debt = 7.32% x (1 - 15%) = 6.22%

bond 4:

YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

YTM = {2,430,000 + [(60,000,000 - 63,420,000) / 50]} / [(60,000,000 + 63,420,000) / 2]

YTM = 2,361,600 / 61,710,000 = 3.83 x 2 = 7.65%

after tax cost of debt = 7.65% x (1 - 15%) = 6.51%

the correct option is c

forbearance of student loan payments. under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. if you don't pay the interest during that period, the interest may be “capitalized,” which means it is added to your principal balance.